Correlation Between Warner Music and Orient Overseas
Can any of the company-specific risk be diversified away by investing in both Warner Music and Orient Overseas at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Warner Music and Orient Overseas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Warner Music Group and Orient Overseas Limited, you can compare the effects of market volatilities on Warner Music and Orient Overseas and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Warner Music with a short position of Orient Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Orient Overseas.
Diversification Opportunities for Warner Music and Orient Overseas
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Orient is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas and Warner Music is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Warner Music Group are associated (or correlated) with Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Warner Music i.e., Warner Music and Orient Overseas go up and down completely randomly.
Pair Corralation between Warner Music and Orient Overseas
Assuming the 90 days horizon Warner Music is expected to generate 7.04 times less return on investment than Orient Overseas. But when comparing it to its historical volatility, Warner Music Group is 2.15 times less risky than Orient Overseas. It trades about 0.01 of its potential returns per unit of risk. Orient Overseas Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 832.00 in Orient Overseas Limited on September 5, 2024 and sell it today you would earn a total of 389.00 from holding Orient Overseas Limited or generate 46.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Orient Overseas Limited
Performance |
| Timeline |
| Warner Music Group |
| Orient Overseas |
Warner Music and Orient Overseas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Orient Overseas
The main advantage of trading using opposite Warner Music and Orient Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Orient Overseas can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Orient Overseas will offset losses from the drop in Orient Overseas' long position.| Warner Music vs. AUST AGRICULTURAL | Warner Music vs. North American Construction | Warner Music vs. Granite Construction | Warner Music vs. Automatic Data Processing |
| Orient Overseas vs. Consolidated Communications Holdings | Orient Overseas vs. Warner Music Group | Orient Overseas vs. LG Display Co | Orient Overseas vs. Charter Communications |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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